Wheat Prices Archives - U.S. Wheat Associates

Wheat Price Perspectives: A Look at Long-Term Trends

Over the last year, world wheat prices have trended steadily lower, continuing their fall from the highs hit in May of 2022 after Russia invaded Ukraine. Ample wheat stocks from Russia and record exports flowing from the Black Sea continue to weigh on global wheat prices.

The average world FOB price has decreased $32/MT from the start of 2024 and is nearly $255/MT less than the May 2022 high, according to AgriCensus price data. Although the war still rages in Ukraine, the war risk premium has eroded in the market, allowing prices to revert to pre-war trends. The following will outline the current price situation and highlight factors to watch as wheat markets align with long-term trends.

This chart shows how export prices for wheat from several suppliers spiked following the start of the Russian invasion of Ukraine but have now returned to long-term trends.

World FOB prices have reverted to pre-war levels, weighed by low-priced exports flowing from the Black Sea. The average world FOB price has decreased $32/MT from the start of 2024 and is close to $255/MT below the May 2022 high. Source: AgriCensus.

A Return to Pre-War Levels

Although there is a sharp contrast between the current downward trend in global wheat markets and the volatility observed over the last year, wheat prices have fallen more in line with long-term trends. Current world FOB prices hover between $200 and $300/MT on average, in line with price levels from 2018 to 2020. Although the spread between origins is still larger than pre-war averages, the spread has narrowed over the last year. According to AgriCensus and U.S. Wheat Associates Price Report data, in Jan. 2023, U.S. soft red winter (SRW) wheat sold for $347.96/MT FOB, while Russian wheat (12.5% on a dry moisture basis) was loaded at $308/MT FOB, a nearly $40/MT spread. Jumping ahead to March 21, 2024, U.S. SRW is quoted at $216.24/MT FOB, while Russian FOB indications sit at $204/MT, down to a $12/MT spread, similar to spreads seen throughout 2019 and 2020.

Factors to Watch

U.S. Wheat Associates (USW) is monitoring several factors at work in the global wheat market. Even before Russia’s invasion in Feb. 2022, global price levels were beginning to rise. Wheat use jumped 5% to a record 787 MMT in 2020/21, exceeding production by 14.0 MMT. The March World Agricultural Supply and Demand Estimates still put the 2023/24 global wheat consumption 11.0 MMT above production, further tightening stocks. Likewise, the stocks-to-use ratio, excluding China, is forecast to tighten to 20% in 2023/24, the lowest since 2007/08, while early estimates from the International Grains Council predict a decrease in global ending stocks to 57.0 MMT in 2024/25.

This bar and line chart shows the relationship between world wheat production and use is on an upward trend from 1999 through 2024.

From 2014/15 to 2017/18, world wheat production exceeded consumption, increasing world ending stocks to a record 297.6 MMT in 2019/20 and a stocks-to-use ratio of 25%. In 2018/19, global wheat consumption began to outpace production, eroding ending stocks and tightening global balance sheets. Source: USDA PSD.

Looking ahead to marketing year 2024/25 and beyond, a continued decline in world-ending stocks and the tightening stock-to-use ratio may have a bullish influence on price trends. However, in the short term, global wheat markets remain well-supplied, and the ongoing flow of wheat from Russia, the Black Sea, and the EU weighs on prices.

This line chart from USDA shows the relationship between crop and input price indexes suggest farmer profit margins are much lower today compared to 2000.

At the 2024 USDA Agricultural Outlook Forum, USDA Chief Economist Seth Meyer indicated that output prices are falling faster than input prices, leading to tighter margins, and reducing profitability for U.S. farmers. Source: USDA Agricultural Outlook Forum.

While decreasing wheat prices benefits importers, the current situation poses unique challenges for U.S. wheat farmers. According to Seth Meyer, USDA Chief Economist, input price trends lag as the output prices fall, resulting in tighter profit margins and reduced sector profitability for wheat and other row crops. Tighter margins put additional pressure on U.S. farmers, and long-term profitability can influence production trends and planting decisions. Nevertheless, U.S. farmers planted wheat before the war and will continue to produce a range of high-quality wheat classes as markets revert to pre-war norms, ensuring a reliable supply of wheat for the world’s importers.

By Tyllor Ledford, USW Market Analyst

March 21, 2024/by Steve Mercer

Supply and Demand, Wheat Prices, Wheat Production and Harvest

Inputs and Profits: Current Conditions Prove There’s Nothing Magical About Farming Math

Kitchen table math can be a chore this time of year, as U.S. wheat farmers shovel their crop production costs into calculators, hoping the numbers they scoop out next year will be magically heavier than those they tossed in this year.

But here’s a secret about the math of farming: it isn’t really magic.

“There’s a lot of work and a lot of luck involved in making a profit in our business,” is how U.S. Wheat Associates Chairman Michael Peters put it. “The numbers are rarely where you need them to be or where you want them to be.”

An important thing for customers of U.S. wheat to keep in mind is that input costs and the prices farmers receive for their crops each year go a long way toward determining which crops farmers choose to plant the next year.

“The goals of a U.S. farmer are to help feed the world and to also feed our own families,” said Peters, who grows wheat and raises beef cattle in Oklahoma. “We make a lot of decisions each year based on market conditions and expenses. And those are two things that tend to go up and down a lot. They are never stagnant.”

This chart by USDA shows the average cost per acre to produce crops in the U.S. between 2020 and 2024. According to USDA, among the major field crops, the cost-of-production for wheat is forecast to be the lowest at $416 per acre, down 2.3%.

Farming’s ‘Reality’ Math

Although 2023 input costs have been, in general, mostly lower than the costs wheat farmers endured a year ago, a profitable 2024 is far from guaranteed. While crop production expenses have fallen a bit and are expected to remain lower compared to last year’s cycle, commodity prices – including the prices paid to farmers for their wheat – are also forecasted to be lower.

That’s farming’s reality math.

Wheat prices have declined about 27% since the start of 2023, according to Rabobank, and now trades at levels well below those seen before the war in Ukraine began in early 2022. Lower wheat prices are attributed mostly to strong Russian wheat production and a pattern of opportunistic import purchases.

Despite lower prices, farmers appear committed to putting wheat in the ground. In its most recent forecast, USDA put the planted area for wheat that will be harvested in 2024 at 48 million acres, which would be down 1.2 million acres from the 49.6 million acres in 2023 but above the 5-year average of 46.4 million acres.

In general, the cost of putting wheat seed into the ground in 2023 saw a slight decline in many parts of the country, as fertilizer and fuel costs dropped after spiking the past two years. However, wheat prices also fell, cutting into potential farmer profits.

Better and Worse

In mid-2024, USDA’s Economic Research Service released a cost-of-production forecast for major field crops that included updated projections for 2023 costs and the first look at estimated production expenses for 2024. Notably, input costs for the 2024 growing season are expected to be the third-highest all-time, behind only 2022’s record-high and 2023’s second-all-time high.

The slight downward trend in input costs does hold some promise, farmers say.

“Chemical prices are probably half of what they were and fertilizer prices are down 30% to 40%, maybe 50% in some cases, depending on the product,” said North Dakota wheat farmer and USW Secretary-Treasurer Jim Pellman. “Fuel prices have moderated a little bit. So generally, major inputs have reduced the last couple of years. But at the same time, you’re seeing lower prices. The best-case scenario for a farmer is low inputs and high grain prices. The worst-case scenario is high inputs and low prices. We are not seeing either of those right now. So it could be better, but it could be worse.”

This chart provided by USDA shows the percentage change in farm production expenses between 2020 and 2023.

Some Hope for Wheat Growers?

While input costs remain relatively high, according to USDA, among the major field crops, the cost-of-production for wheat is forecast to be the lowest at $416 per acre, down 2.3%. Yet challenges remain.

“Describing the last three years of global agricultural commodity prices as volatile is an understatement,” said Carlos Mera, head of agri-commodities at Rabobank. “Producers are still grappling with the after-effects of war, adverse weather, high farm input inflation and weak consumer demand, but eyeing 2024 as the return to a semblance of normality.”

Winners and Losers

Rabobank predicts that prices wheat will remain subject to weather and export-related uncertainty, as it has for several years now.

“Winners and losers will emerge as agricultural commodities go through different points of the cycle next year,” Mera said.

For wheat, Rabobank expects another supply deficit in the global market. There will be little relief from the Southern Hemisphere crops in the coming months, with both Argentina and Australia underperforming. El Niño could leave fields in Australia with little moisture ahead of the 2024 planting season, according to Rabobank.

U.S. wheat farmers have been through these kinds of up-and-down supply and demand cycles before. They do their best to make planting decisions based on the best information they have in the fall and spring each year.

“The difficult part for a farmer is that we have to make our planting plans far in advance, well before we know exactly what the market is going to be like at harvest time,” explained Pellman. “We can’t predict the weather, either. That’s our world. But, we are still able to produce a high-quality crop every year.”

November 30, 2023/by Ralph Loos

Market and Crop Analysis, Wheat Prices

World Wheat Prices Hover at Lower Levels With Bullish Factors Lurking

Since the start of the year, world wheat prices have consistently trended lower, with Russian wheat maintaining its position as the world’s cheapest origin. With the Northern Hemisphere wheat harvest now complete, it brings about the question: have markets touched their seasonal lows, and in what direction will they go next? In this article, we will evaluate the underlying market factors driving recent price trends and highlight factors to watch moving forward.

A Downward Trend

Following the initial shock of Russia’s Ukraine invasion in 2022 with volatility on the way, world wheat prices have steadily decreased. From January 2023 to present, world wheat prices are down $77/MT, on average.

Russia’s influence in the world market is driving this trend in world price levels. According to the October World Agricultural Supply and Demand Estimates, Russian production was estimated at 85.0 MMT, 5.0 MMT above the five-year average. Likewise, 2023/24 Russian exports are forecast at 50.0 MMT, the highest on record. The ample supplies of Russian wheat and significant export flows have put downward pressure on the world wheat market. As a result, the October 23, 2023 AgriCensus price data puts Russian wheat with 12.5% protein (on a dry moisture basis) at $225/MT FOB, their lowest price since September 2020 and the cheapest on the world market.

Over the same time, world wheat demand has softened. For the first time since 2018/19, USDA projects a reduction in global use, with the October WASDE putting demand at 792 MMT, down from 796 MMT the year prior.

Line chart showing world wheat prices in several countries are on a downward trend.

Since January 2023, world wheat prices have decreased by 17%, weighed by ample supplies exported from Russia. Source: AgirCensus Price Data, October 23, 2023.

More Than Meets the Eye

At first glance, the global supply and demand situation shows ample Black Sea grain exports and softening global demand, the perfect pairing for lower global wheat prices.

Looking more closely, ending stocks in major exporting countries are forecast to fall to the lowest level since 2012/13, demonstrating a tighter global balance sheet that is, apparently, not reflected in current price levels.

Bar chart showing a downward trend in ending stocks of wheat in major exporting countries and world wheat prices.

Ending stocks in major exporting countries are down 10% on the year and 29% from 2017/18. Despite the decreased stocks, wheat prices sit near 2021 levels, failing to reflect the tighter world balance sheet. Source: World Agricultural Supply and Demand Estimates and U.S. Wheat Associates Price Report.

Additionally, Southern Hemisphere wheat production, particularly Australian output, is a factor to watch. As the El Niño weather event develops in the equatorial Pacific, dry weather is expected to prevail in Australia. As a result, the October World Agricultural Supply and Demand Estimates put Australian production at 24.5 MMT, down 1.5 MMT from September and 15.2 MMT below the year prior. However, recent rains in Australia may help improve yields, bringing an additional bearish influence to the world market.

Beyond Traditional Fundamentals

In addition to supply and demand, macroeconomic factors have played an increasingly important role in world wheat prices. The U.S. dollar was strong a year ago, but softened over the first half of 2023. However, beginning in July, the dollar index shifted up again, driven by a sustained hawkish view held by the U.S. Federal Reserve and the resilience of the U.S. economy in the face of higher interest rates. As importers are keenly aware, a strong dollar adds cost to wheat purchases.

On the bullish side, commercial funds have become “net short” in the Chicago Board of Trade Wheat (CBOT) futures. The trend indicates that commercial investors believe prices will continue trending lower. If the sentiment shifts and prices rise, funds will be forced to cover the positions, potentially adding significant volatility and upward pressure on Chicago wheat futures and the market as a whole.

Chart showing the volume of net short positions in wheat futures since early 2022 indicating an uptick in short positions.

Speculative funds hold a net short position in CBOT Wheat futures. If sentiment shifts, forcing a massive covering of the short positions, prices will skyrocket; thus, contributing additional short-term volatility and bullish influence on the market. Source: Commodity Futures Trading Commission Data.

Finally, we cannot discuss global wheat prices without addressing the geopolitical risks associated with continued conflicts. Grain continues to flow from the Black Sea, and the market outlook has stabilized. Nevertheless, sentiment could shift quickly if a new development or escalation occurs in the conflict. Similarly, the unknowns of the war in the Middle East could have a detrimental impact on oil prices, directly impacting ocean freight rates and dampening the global economy.

Key Takeaways

In summary, many lurking influences may impact world wheat prices, both bullish and bearish, that are not yet priced into world markets. Buyers should closely monitor the Southern Hemisphere wheat harvest developments, pay attention to upcoming updates to the USDA World Agricultural Supply and Demand Estimates, and stay well informed regarding changes in the world macroeconomic situation.

With many unknowns, it is vital to maintain a dialogue with your local U.S. Wheat Associates (USW) office and suppliers to capitalize on opportunities to maximize the value of U.S. wheat.

By Tyllor Ledford, USW Market Analyst

October 25, 2023/by Steve Mercer

Soft White, Supply and Demand, Tyllor Ledford, Wheat Prices

U.S. Soft White Wheat Production: It’s Dry, But Too Early in Harvest to Determine 2023 Yield

Drought conditions have grown progressively worse in the PNW over the last few months as temperatures increased rapidly and measurable precipitation remained scarce, depleting soil moisture and stressing the planted wheat crop.
Source: NOAA Climate Prediction Center

Amid this year’s volatile markets and relatively slow demand, U.S. soft white wheat (SW) has provided many customers with buying opportunities, positioning itself as one of the most competitive classes of U.S. wheat.

In recent months, dryness in the Pacific Northwest (PNW) this spring dominated market news and discussions about quality. As harvest ramps up across the SW growing region, more information is expected to become available regarding SW production, yield, and quality. In the meantime, this article will recap the current soft white wheat situation and provide background on supply factors as harvest progresses in the PNW.

Production Outlook: A Tri-State Effort

White wheat is typically one of the classes with the most stable planted area. The June 30 USDA acreage estimates showed a slight increase in white wheat acres to 4.28 million acres, up from 4.24 million acres in 2022/23, with a specific increase in the SW producing state of Oregon. Despite the increased area, dry conditions have lingered, and have had a potentially detrimental impact on yield potential and quality. The USDA Crop Production Report released on July 12 forecasts SW production at 6.7 MMT, down from 7.4 MMT the year prior and 600,000 MT below the five-year average of 7.2 MMT. However, the forecast is still above the 2021/22 production levels of 5.47 MMT after severe drought diminished yield potential and increased protein levels.

On a per state basis, production potential differs throughout the growing region. Wheat production is forecast to be down in Washington and Oregon by 15% and 16%, respectively. Meanwhile, in Idaho, all wheat production is forecast at 2.45 MMT, down 2% from the year prior. Though the Idaho crop is behind on development, some growing regions have benefitted from cool weather and scattered showers.

2023/23 SW production is forecast at 6.7 MMT, down 9% from last year and 7% below the five-year average.
Source: USDA ERS Wheat Data

The Current Balance Sheet

Throughout the latter part of the 2022/23 marketing year, industry sources reported slow selling by farmers and increased stocks held on the farm. Due to the increased stocks held by farmers, beginning stocks for the 2023/24 marketing year increased by 500,000 MT to 2 MMT, the first stocks increase since 2020/21. Though protein levels of the 2023 crop are not yet known, the increased old crop wheat stocks can be blended with new crop to help meet customer specifications.

Moreover, SW prices have softened substantially over the past year, weighed down by recovered production in the 2022/23 crop year, decreased export demand, competition from other origins, and seasonal pressures as exporters more aggressively price SW into the global market. Over the last six months, SW prices have decreased from $321/MT in January 2023, to $263/MT in July 2023, their lowest level since November 2020. Furthermore, there has been little to no premium for max 9.5% protein versus max 10.5% protein throughout a majority of the 2022/23 crop year.

Despite the 9% decrease in SW production for 2023/24, total supply is down only 2% due to increased carryover stocks from the year prior.
Source: USDA World Agricultural Supply and Demand Estimates

Looking Ahead

As of July 17, the USDA crop progress report put winter wheat in Washington, Oregon, and Idaho at 6%, 15%, and 5% harvested, respectively. With little harvest progress and no quality data collected, no definitive information is yet available regarding SW production yield, and quality characteristics. Keep in mind that anecdotal evidence generally indicates that dryland areas and regions with shallow soil are harvested first. Thus, higher protein is expected to be registered early in the season.

U.S. Wheat Associates recommends closely monitoring the SW harvest and maintaining regular communication with your supplier regarding protein availability and premiums. For weekly updates to harvest and price information subscribe to the U.S. Wheat Associates Harvest Report and Price Report.

SW prices have softened substantially over the last six months, decreasing from $321/MT in January 2023, to $263/MT in July 2023. SW prices hover at their lowest level since November 2020, pressured by low demand, competition from other origins, and seasonal pressures.
Source: U.S. Wheat Associates Price Report

July 19, 2023/by Ralph Loos

Commercial Sales, Market and Crop Analysis, Tyllor Ledford, Wheat Export Supply System, Wheat Prices, Wheat Production and Harvest

The Wheat Marketing Year in Review

Final export commitment data for marketing year (MY) 2022/23 that ended May 31 is now available, providing an overview of the year’s export and demand trends.

In this article, we will look back on the MY 2022/23 demand trends and current MY 2023/24 data to provide context for the year to come as the world wheat market conditions continue to recover from the year’s volatility.

Since the start of 2022/23, wheat prices and freight decreased, and currency markets stabilized following the steep price shock of Mr. Putin’s unprovoked invasion of Ukraine. Despite the improved conditions, volatility and its consequences still reverberate through the U.S. and global wheat markets.

MY 2022/23 Year End Commercial Sales

Even with the year’s price risk, when ordinary hard red winter wheat exported from the Gulf of Mexico averaged $10.70/MT FOB, Mexico, the Philippines, Japan, South Korea, and Taiwan remained among the top U.S. wheat importers in 2022/23 and have consistently been among the leading importers over the last five years.

As U.S. wheat competitiveness began to improve early in calendar 2023, China entered the market, ultimately surpassing Taiwan to claim the number five spot as their purchases surged 38% above the year prior. Moreover, China became the world’s largest wheat importer with the June World Agricultural Supply and Demand Estimates (WASDE) putting Chinese wheat imports at a record 14.0 MMT.

Bar chart compares U.S. wheat sales to top 10 customers in marketing year 2022/23 to MY 2021/22 indicating Mexico, Philippines, Japan, South Korea were among the top importers.

Mexico, the Philippines, Japan, and South Korea have been consistently among the top five U.S. wheat importers. In 2022/23, China became the world’s largest wheat importer, surpassing Taiwan to claim the fifth-place spot among U.S. wheat importers. Source: USW Commercial Sales Report/USDA Export Sales Data.

Hard red winter (HRW) wheat sales were 32% behind 2021/22, a function of high prices driven by drought and exacerbated by the war risks. Hard red spring (HRS) sales were up 4% following the drought in 2021/22 that severely diminished the crop and put exports at their lowest level since 2008/09. Soft red winter (SRW) sales were nearly even with the year prior and 9% above the five-year average as SRW remained competitive on the global market. Following drought-stressed production in 2021/22, white wheat exports were up 35% at 4.5 MMT and tracking SRW trends. Durum sales were up 109% due to improved production increased sales to Algeria and the European Union.

Bar chart compares U.S. wheat by-class sales in marketing year 2023/24 to the same date in MY 2021/22.

Some classes saw improved export sales year-over-year despite an overall reduction in demand. HRW wheat sales were 32% behind 2021/22, HRS was up 4%, SRW was nearly even with the year prior, white wheat was up 35% and durum was up 109%. Source: USW Commercial Sales Report/USDA Export Sales Data.

MY 2023/24 to Date

Demand has been relatively light so far in MY 2023/24 as many buyers delay purchasing decisions for more concrete information about the upcoming harvest and price fundamentals. Adding optimism for importers are recent rains in the U.S. Plains that have helped boost winter wheat crop ratings and rapid planting progress in HRS production areas.

Overall, U.S. wheat commercial sales are down 18% from last year’s pace at 3.9 MMT. Even so, customers in Japan, South Korea, and Taiwan are ahead of their 2022/23 pace, and SRW commitments have surpassed last year’s level by 18% given its competitive price advantage.

USW Commercial Sales Report comparing export sales to specific countries in marketing year 2023/24.

Year-to-date marketing year 2023/24 commercial sales total 3.9 MMT, down 18% from the year prior. Meanwhile, purchases in Japan are 2% ahead of last year, South Korea up 5% and Taiwan up 75%. Vietnam, Guatemala, Ecuador, and Peru have also surpassed last year’s pace, highlighting how the market sentiment has shifted from a year ago. Source: USW Commercial Sales Report/USDA Export Sales Data.

New 2023/24 Estimates

Meanwhile, the June WASDE released on June 9 reported significant increases in world production estimates and ending stocks; however, the increases were unsurprising, leaving futures prices little changed.

World wheat production increased 10.4 MMT from the May estimates to 800.2 MMT on improved output in Russia, India, and the EU. World consumption increased by 4.4 MMT to 796.1 MMT, accounting for increased feed use in China, Russia, and India. Ending stocks increased to 270.7 MMT due to large projected stocks in India, Russia, and the EU. The estimates were also subdued on the domestic front, raising production by 100,000 MT, and increasing ending stocks by 200,000 MT with no other changes to the U.S. balance sheet.

Keep Up To Date

Though it is still very early in MY 2023/24, analyzing past trends and the monthly supply and demand updates helps provide context to aid purchasing decisions. Compared to this time last year, many influences have turned to favor wheat importers, though the war in Ukraine and weather patterns throughout the global wheat growing region add underlying risk. With risk still ever present, information is vital for planning and executing purchases. You can stay current on the latest reports via the U.S. Department of Agriculture and the U.S. Wheat Associates weekly Commercial Sales and Price Reports.

By U.S. Wheat Associates (USW) Market Analyst Tyllor Ledford

June 21, 2023/by Steve Mercer

Market and Crop Analysis, Wheat Prices, Wheat Production and Harvest

Changing Weather Patterns Could Favor U.S. Wheat Production

Over the last few weeks, we have analyzed several factors that are shifting or have the potential to shift U.S. wheat value toward wheat importers. A combination of lower futures prices, a break in dry bulk freight prices, an increase in planted area, and the potential for a weaker dollar all point to a wheat market that has turned to favor buyers after two years of price risk. Though it is the most unpredictable of all the factors influencing U.S. wheat prices, the weather is arguably the most critical component in determining U.S. wheat production and price.

El Niño Southern Oscillation

In a cycle called El Niño Southern Oscillation (ENSO), meteorologists study the air and water conditions in the equatorial Pacific and the subsequent impact on global weather patterns.

This image shows a map of the world and the expected rainfall patterns in different regions in a La Nina weather pattern.

Three consecutive La Niña weather events have brought increased moisture to Australia, boosting their wheat production. Meanwhile, drought conditions have persisted in Argentina and the U.S., severely affecting production and yields. Source: International Research Institute for Climate and Society.

“Triple Dip” La Niña

Usually lasting nine to 12 months, the most recent La Niña event persisted for three cycles, marking the first “Triple Dip” La Niña since 2001.

The three consecutive La Niña events have brought above normal rains to Australia during their wheat growing season. As a result, Australia has boasted three years of record wheat production. The average production from 2020-2023 is 66% higher than the previous five-year average.

Simultaneously, the La Niña weather event brought dry conditions to the U.S. and Argentina. U.S. Hard Red Winter wheat (HRW) production, the largest class of U.S. wheat grown primarily in the U.S. Southern Plains, decreased by 29% on the year to 14.5 MMT due to severe drought in the region. Likewise, USDA estimates put Argentine wheat production at 12.9 MMT, down 41% from the year prior and 33% from the five-year average, with persistent drought also acting as the primary cause.

Chart shows Australian wheat production, domestic use and exports over the past 10 years to show the effects of La Nina.

Australia has produced three consecutive record wheat crops as increased moisture benefitted its growing regions. As a result of increased production and stocks, Australian wheat exports have also reached record highs. Source: March USDA World Agricultural Supply and Demand Estimates.

Chart shows Argentinian wheat production, domestic use and exports over the past 10 years to show the effects of La Nina.

Drought severely impacted 2022/23 wheat production in Argentina. Source: March USDA World Agricultural Supply and Demand Estimates

A Break in The Cycle

In recent weeks, climate experts have predicted the end of La Niña, with an increased likelihood of an El Niño weather event forming. As the La Niña dissipates, there is potential for increased moisture in the U.S. Southern Plains and Argentina, while Australia will likely see drier conditions.

This map of the world shows rainfall patterns in regions from an El Nino patters, relative to La Nina patterns.

An El Niño weather event could bring dryness to Australia and increased precipitation to Argentina and the U.S., potentially favoring western hemisphere wheat production regions. Source: International Research Institute for Climate and Society.

What Does This Mean?

The market has already begun to weigh the impact of the shifting weather patterns. The Australian Bureau of Agricultural and Resource Economics and Statistics has already lowered 2023/24 wheat production estimates by 28% to 28.2 MMT in response to the new weather data.

As the weather changes and the potential for moisture increases in the U.S. Southern Plains, the production outlook in the U.S. may improve. Increased production would help take pressure off the tight U.S. balance sheet with the potential to bring down relatively high U.S. wheat export prices. Nevertheless, given the unpredictability of the weather, the actual impacts will not be known until well into the 2023/24 marketing year.

By USW Market Analyst Tyllor Ledford

March 28, 2023/by Steve Mercer

Soft Red Winter, Soft White, Wheat Prices

Washington State University Economist Expects U.S. Wheat Prices Will Fall

Wheat prices “probably won’t be quite as good [for farmers]” in 2023 as they were last year, a top grain economist says.

“We won’t see last year’s prices, we’ll be several dollars short of that,” said Randy Fortenbery, the Thomas B. Mick Endowed Chair in Small Grain Economics at Washington State University, told farmers during the Spokane Ag Show. “We can’t be thinking we’re going to see 2022 wheat prices … unless there’s some other shock that’s not being anticipated.”

Soft white wheat ranged from $8.45 to $8.55 per bushel on the Portland market as of Feb. 8. Fortenbery advised farmers to be careful about assuming they’ll see prices above $10 a bushel. He expects wheat prices to trade within a $3 to $3.50 a bushel range. About $9.25 to $10 per bushel would be the high end, he said. [Editor’s Note: USDA lowered its February forecast of average farm gate wheat prices in 2023 to $9.00 per bushel.]

A Different of Opinion

The International Grains Council and USDA have conflicting forecasts for global wheat trade, Fortenbery said.

The council expects total world ending wheat stocks to be up 3% compared to last year and a 1.3% reduction in world wheat trade, which suggests a decline in prices. USDA projects world wheat stocks to be down 2.6% and trade to be up 5%, which suggests a price increase. Fortenbery said he leans toward the international council’s projections.

Both agencies agree the combination of Russia and Ukraine wheat exports will be up compared to last year. The flow of grain out of the Black Sea market appears to have stabilized the price impact of the conflict, Fortenbery said.

SW, SRW Back at Parity

The relationship between Portland white wheat prices and Chicago [soft red winter] wheat futures prices is returning to normal, after white wheat reached a peak of $3 above Chicago futures prices in recent years. The norm for Portland is closer to $1 above Chicago.

Because of the extreme difference, soft white prices didn’t respond last year when Russia invaded Ukraine, while Chicago [soft red winter] wheat prices “exploded,” rising to meet the higher white wheat prices, Fortenbery said. The relative prices are back in synch with each other, he said.

Line chart of USDA and U.S. Wheat Associates data showing wheat prices for soft white and soft red winter exports have converged to near parity in 2022/23.

U.S. soft white and SRW export prices have converged in 2022/23 to near-parity. Source: U.S. Wheat Associates (USW) Price Report – February 3, 2023.

“If the Black Sea ends up being a problem again this spring, we’ll get some bump out of that,” he said.

The market doesn’t currently expect that, but risk remains, Fortenbery said.

Commodity prices generally look favorable in the next few months, but input costs are also at historic highs, Fortenbery said. Almost every major expense category was significantly higher last year compared to 2021; some were up to 60% or more.

He’ll be watching general inflation, which affects interest rates and production loans, and natural gas and refined fertilizer shipments from the Black Sea.

For additional information on U.S. wheat export price trends, see this Wheat Letter post from January 30, 2023: Wheat Prices Trend Lower Even As Uncertainty Continues.

February 10, 2023/by Steve Mercer